Illinois’ five public-employee retirement systems are a combined $100 billion short of what’s needed to pay benefits as promised to wor...

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Key details of the plan

The predicament

Illinois’ five public-employee retirement systems are a combined $100 billion short of what’s needed to pay benefits as promised to workers and retirees. The accounts contain about 40 percent of what they need to be considered fully funded. The shortfall is due largely to decades of legislators skipping or shorting the state’s pension payments — a practice that allowed them to spend that money elsewhere. Other causes include economic downturns, lower-than-projected market performance and beneficiaries living longer.

The impact

The massive unfunded pension liability — along with the state’s other financial woes — has led credit rating agencies to repeatedly downgrade Illinois’ rating to the lowest of any state. That means when the state borrows money, taxpayers pay more in interest than people in other states. Illinois’ annual payments to the funds have grown, taking up about one-fifth of the state’s general funds budget — about $6 billion — this year. That’s money that could be going to schools, roads or other areas.

The proposed solution would, among other provisions:

n Raise the retirement age for people 45 and younger on a sliding scale basis.

n Guarantee the state will make its full annual contribution to the funds and allow the systems to sue if the payments aren’t made.

n Change the cost-of-living increase from the current rate of 3 percent, compounded annually, on the full annuity benefit. Retirees would receive increases at that rate only up to a certain amount of annuity benefit. Legislative leaders say the new structure would benefit lower-income workers who held their jobs longer. Employees also would miss some annual cost-of-living adjustments, depending on their age.

n Cap the amount of salary on which a pension benefit is based. In 2013, that amount would be about $110,000.

n Decrease the employees’ own contribution to their retirement funds by 1 percent.

n Provide workers the option of participating in a 401(k)-style defined contribution plan.

The decision

A special bipartisan pension committee OK’d the plan Monday when a majority of its members signed the measure after returning to the Capitol. That sends the plan to the full House and Senate, where both chambers would have to vote on it. If it is approved in both chambers, the bill then would need Quinn’s signature.

The next step

If the plan is passed, unions say they will sue. They argue the proposal would violate a provision of the state Constitution that prohibits diminishing pension benefits. Legislative leaders believe the plan will survive a challenge because of the funding guarantee and the decrease in employee contributions.

Public employee unions Monday continued an intense lobbying effort against a pension reform bill, even as business groups, legislative leaders and Gov. Pat Quinn were trying to round up support for it.

Both sides were making a last-ditch push ahead of the General Assembly’s return today to Springfield to vote on the long-elusive bill to address the state’s $100 billion pension debt.

The bill, an amendment to Senate Bill 1, was hammered out by the four legislative leaders last week and includes a reduction in cost-of-living adjustments to benefits along with increasing the retirement age and creating an optional 401(k)-style retirement plan.

In exchange, the bill calls for a reduction in employee contributions and a guarantee that the state will make its payments to the pension systems.

Members of the We Are One Illinois coalition of public employee unions continued flooding lawmakers’ offices with phone calls asking them to oppose the reform bill.

“In addition, the coalition is doing legislative office visits all over the state, primarily driven by retirees,” said Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees, a member of the coalition. “They are meeting wherever possible with senators and representatives to ask them to oppose the pension theft bill.”

Lindall said the effort will include lobbying senators who previously voted in favor of a reform plan negotiated with the unions, as well as lawmakers who voted against an earlier version of pension reform. That plan, which was also attached to Senate Bill 1, was pushed by House Speaker Michael Madigan, D-Chicago. It narrowly passed the House, but got only 16 votes in the Senate.

“Provisions of the leaders’ plan are nearly identical to the Madigan plan,” Lindall said. “People that opposed that should oppose this.”

Counting noses

At the same time Monday, nearly a dozen business organizations signed a letter to lawmakers urging them to support the bill. They included the Illinois Chamber of Commerce, Illinois Manufacturers’ Association, Illinois Retail Merchants Association and National Federation of Independent Business. Both the Civic Federation and the Civic Committee of the Commercial Club of Chicago also signed the letter.

“This bill is a good bill and deserves your support,” the letter says. “While not a solution to all of the state’s fiscal problems, this bill is a significant step forward. It will stabilize the pension systems and help put them on the path to fiscal security.”

Senate President John Cullerton, D-Chicago, negotiated the reform plan with the unions that has their backing. He is working now to round up votes for the compromise negotiated by the four legislative leaders.

“He has spent the last couple of days doing individual pitches to individual lawmakers,” said Cullerton spokeswoman Rikeesha Phelon. “Heading into (today), his goal is to try to get 18 members. That’s been his goal, and it looks like we’re heading in a favorable direction. Right now, our general expectation is positive that we’d be able to meet that goal, but we do have a little bit more work to do to nail down that 18.”

Page 2 of 2 - Senate Democrats have 40 members. If they put 18 votes on a reform bill, 12 of the 19 Senate Republicans will have to vote for it in order for it to pass.

A spokeswoman for Senate Minority Leader Christine Radogno, R-Lemont, said there is no agreement on how many votes Republicans and Democrats will secure for the bill.

“This is a new bill, and people are coming out for it and against it,” said spokeswoman Patty Schuh. “We’ll have to count noses.”

She said Radogno is continuing to speak to Republican senators to answer their and their constituents’ questions.

“They’re getting a lot of phone calls in their offices,” she said.

Politics in play

Potentially complicating the outcome is election-year politics.

Treasurer Dan Rutherford, one of four Republicans running for governor, issued a statement Monday saying that he is opposed to the reform plan.

“I do not believe it will withstand judicial review should it pass the Illinois General Assembly,” Rutherford said. “Our government’s obligation can be changed through a process involving adequate consideration to the employees. In my opinion, the legislation before us fails to address this relationship and offer adequate consideration in exchange for altering the pension benefits.”

Republican gubernatorial candidate Bruce Rauner also opposes the plan, but because it doesn’t go far enough in reforming the system. He wants a cap on current benefits and shift all workers into a 401(k)-style plan.

Sen. Kirk Dillard, R-Hinsdale, questions the bill’s constitutionality and said more time should be devoted to public hearings However, Sen. Bill Brady, R-Bloomington, supports the measure, saying it is necessary to get the state’s pension costs under control.

Gov. Pat Quinn’s office said the issue should not get bogged down in politics.

“It shouldn’t be about politics, it’s about numbers,” said Quinn spokeswoman Brooke Anderson, a reference to the amount of state tax revenue needed each year to cover pension costs. “We haven’t one good excuse not to vote for pension reform. None of the excuses being circulated hold any water.”

Anderson said Quinn “has been working around-the-clock making calls. This is very, very difficult.”

The reform plan will get a hearing this morning before the bipartisan conference committee formed last summer to develop a pension compromise. Although the final agreement was hammered out by the four legislative leaders, the committee has signed off on the bill. That will enable both the House and Senate to vote on the legislation later today.